ATTORNEY GENERAL v. SHIMIZU CORPORATION

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JUDGMENT

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Mayo, J.A.:

1. These appeals relate to an arbitration which is being conducted by Mr. Brian Knight, Q.C. in relation to construction work undertaken by Shimizu in connection with the extension of the Queen Mary Hospital.

2. Shimizu was the main contractor. They are making claims against the Hong Kong Government. The claims relate to delays and disruption of the work which they undertook and which was undertaken by Nominated Sub Contractors (NSC).

3. The subject matter of these appeals arose out of decisions made by the arbitrator in the 3rd and 4th interim awards. Various applications were made by the Attorney General to Leonard J for leave to appeal against the determinations which had been made and for applications for other matters to be remitted to the arbitrator. Shimizu also made an application for various matters to be referred to the arbitrator. Leonard J declined to grant leave to appeal on the matters referred to and only agreed to order that one of the six issues requested by the Attorney General should be remitted to the Arbitrator. He did however order that the three matters Shimizu applied to be remitted to the arbitrator should be so remitted.

4. This appeal also embraced a judgment of Seagroatt J who heard an appeal from the decision of the arbitrator to order that compound interest be payable by the Government. Prior to the hearing the parties had consented to leave being granted for this. Seagroatt J held that the arbitrator did have jurisdiction to make such an award.

5. At the commencement of the hearing a decision was made to divide the issues into three groups so as to provide a convenient framework for canvassing the issues which arise on this appeal. In consequence the numbering of the issues also suggested by counsel has been adopted.

6. The first group covered the main issues in Civil Appeals 80 and 81 of 1996. These issues related to the question as to whether Leonard J was right in making the orders he did either to remit or not to remit the various issues to the arbitrator.

7. These orders included the remission of the rubbish removal claim (1.1) and the refusal to remit an alleged excessive overtime claim of Shimizu (1.2) to the arbitrator and the decision to remit Shimizu's three claims for phase 2 form work (1.3), tower disruption (1.4) and additional reinforcement (1.5) to the arbitrator.

8. The second group covered Civil Appeal 79/1996. These appeals related to the Judge's decision to refuse to grant leave to appeal against the arbitrator's valuation of prolongation costs under clauses 73 and 76 of the contract (2.1), the exercise of the discretion to award compound interest (2.3) and to consider the rubbish removal issue (2.2) on the basis of the refusal to grant leave.

9. The third group was confined to the issues considered by Seagroatt J in Civil Appeals 185 and 186/1996 when he held that the arbitrator had a jurisdiction to order the payment of compound interest (3.1).

10. Due to the shortage of available time we were unable to hear this limb of the appeal. However as the subject matter can be treated as a discreet and separate issue from those comprised in the other groups the appeal can, if necessary, be entertained by a differently constituted division of this Court.

Group 1

Rubbish removal claim (1.1)

11. In the arbitration Shimizu formulated a claim on the basis that considerable expenditure had been incurred as a consequence of the prolongation of the work. In this connection it was accepted that extensions of time had been duly certified by the architect and the issue was the quantum of the award which should be made under this head.

12. Shimizu lodged its claim on the basis of a global claim as it contended that it was at least impracticable to separate and particularise the interrelationship of every item of loss. Their authority for proceeding in this manner was the judgment of Donaldson J as he then was in Crosby v. Portland Urban District Council 5 BL 121 at 135.

13. In the arbitration the Government had contested the claim on the basis that Shimizu had included a profit element in some of the items claimed thus leading to a situation whereby an excessive amount was being claimed. Shimizu accepted that the costs had to be based on the lowest common denominator of costs but argued that the claim had been submitted on this basis.

14. Mr Fernyhough QC for the Attorney General contended that the submission of a global or rolled up claim involved a high level of risk. This was because if the party submitting the claim was unable to substantiate the whole of the claim it had to be dismissed in its entirety by the arbitrator.

15. He then went on to draw attention to the particular circumstances which had pertained in this arbitration.

16. On account of constraints of time the parties had agreed that a guillotine procedure should be adopted the object of which was to ration the amount of available time to the parties. He contended that there had also been agreement that although the arbitration had proceeded on the basis that the award was an interim award all the matters dealt within the arbitration should be fully disposed of in respect of both liability and quantum.

17. He argued that Leonard J had been in error in these circumstances in ordering that this issue be remitted to the arbitrator as this was clearly contrary to what had been agreed between the parties.

18. Some time was spent at the hearing in going through the contemporary correspondence and the transcript of the hearings when the arbitrator gave the directions he did for the conduct of the hearing.

19. Mr. Goldblatt QC for Shimizu also made submissions on this. He argued that Shimizu had been placed in very considerable difficulties as a consequence of the numerous and late amendments to the pleadings which had continued right up until the late stages of the hearing. In these circumstances it was unrealistic to expect the parties to rigidly adhere to any agreement which may have been concluded at the commencement of the hearing.

20. He also contended that while every effort had been made to finally dispose of the issues coming within the ambit of this hearing it had to be borne in mind that the award being made was an interim award. It was clearly the case that a distinction had to be drawn between interim and final awards.

21. I am satisfied that it is necessary to consider separately the two agreements concluded by the parties with the concurrence of the arbitrator. The first was the guillotine agreement and the second was the agreement that although the award was an interim award all issues coming within the ambit of the award should be finally disposed of. That is there should be a determination of the issues both as to liability and quantum.

22. It was clear from the material placed before us that considerable difficulties were encountered as a result of the late and substantial amendments to the pleadings. It was also clear that both sides used their best endeavours to co-operate and the arbitration did proceed in a reasonably ordered manner.

23. The disruption may have been sufficient to effectively sabotage the guillotine procedure although even this is by no means certain.

24. What cannot be contended is that these difficulties had the effect of abrogating the agreement concluded relating to the finality of the issues. There was nothing in the transcript of the proceedings to suggest this.

25. At no time did Mr Goldblatt make any application to the arbitrator to be released from the agreement or for it to be varied and the conduct of the parties was consistent with this agreement remaining in force. I am satisfied that this was the case and that the parties must be held to this agreement.

26. In his interim report the arbitrator accepted that he had insufficient material to enable him to quantify the amount which should be recovered under the global claim and ordered that further particulars should be furnished to enable him to finalise the matter. Leonard J had been satisfied that unless this was done an injustice would have occurred to Shimizu.

27. With the greatest respect this was not the issue. The issue was whether the arbitrator was at liberty to depart from the agreement concluded between the parties as to finality and the effect of Crosby on the situation.

28. It was accepted by both counsel that where a global claim was made in accordance with Crosby it must fail if it could be demonstrated that any costs had been included over and above the lowest common denominator of costs. Mr Fernyhough contended that submitting a global claim involved an element of risk. This need not necessarily be the case. There is nothing to prevent a party from adopting an alternate strategy of building into the claim a fall back position. The party can provide particulars of the various costs and expenses on the basis that the global claim fails in whole or in part.

29. Shimizu did not avail itself of this alternative strategy. This is evident from the inability of the arbitrator to quantify the claim without further submissions being made to him.

30. The question which has to be decided is whether Shimizu should be permitted this indulgence.

31. Having regard to the agreement relating to the finality of the issues being determined in the interim award I do not see any reason why they should now be given an opportunity of doing what they could and should have done when they presented their case to the arbitrator.

32. The question then has to be considered as to what needs to be done to resolve this situation.

33. The arbitrator was endeavouring to elicit further details to enable him to quantify the claim being made by Shimizu. For the reasons given this should not be permitted. I consider that the case of the Avala 1996 2 Lloyds LR 311 is authority for the proposition that where an order is made remitting an award it is open to the court to order that the remission be on terms. Here when the arbitrator reconsiders this issue he must do so on the basis of the existing material before him. It may well be the case that the result of this is that Shimizu's claim under this head will fail in its entirely.

34. The appeal is successful to this extent.

Group 1

Overtime claim. Items 1A9, 1A10, 1A19 and B1 (1.2)

35. This is a much simpler issue.

36. During the course of the arbitration there was considerable controversy on the subject of delay and the disruption this had occasioned Shimizu.

37. One of the issues which was considered was the quantification of the loss which arose in relation to the costs of labour.

38. In a closely related claim, being claim 1A-16 the arbitrator after receiving submissions ordered that the overtime element which had notionally been included in the cost should be deducted from the award.

39. Unfortunately due to inadvertence the Government's legal advisers omitted to include in their submission a claim that a similar deduction should be made for these items. The arbitrator did not make such a deduction although the relevant surrounding circumstances were indistinguishable from those pertaining in 1A-16.

40. After publication of the award correspondence was exchanged between the Attorney General and the arbitrator in an attempt to ascertain whether this omission had been intentional. The arbitrator was unable to recollect whether this was so. Although the total amount involved was not large in the context of the overall claims being made the Attorney General did seek to have this matter remitted to the arbitrator on the basis that if there was no logical reason for what on the face of it was an inconsistency this was a matter which could be readily rectified. Leonard J declined to order that the matter be remitted to the arbitrator. The reasons he gave for this were:

"It does not necessarily follow that in excluding overtime from the calculations by Mr. Humphrey of disruption costs in respect of the Podium (para. 70 of the 4th Interim Award), the Arbitrator was laying down a principle to be applied in relation to all other heads of claim. The Government has failed to establish that there is, on the face of the Award, an inconsistency which justifies a remission on the ground of technical misconduct. The deduction was made in relation to the one head of claim where it was urged by the Government. In making his award under the items which are the subject of Ground 6, the Arbitrator evidently took into account the evidence in the light of the submissions which were made to him. The Respondent cannot now seek to re-open the argument and raise points in relation to these heads which it could have raised before the Arbitrator. There will be no order for remission on Ground 6."

41. These reasons are valid. They are also consistent with the reasoning I have adopted in respect of the rubbish removal claim that the parties should be held to their finality agreement. This part of the appeal must be dismissed.

Group 1

Shimizu's claims for phase 2 form work, tower disruption and additional reinforcement (1.3,1.4,1.5)

42. Shimizu appealed against the arbitrator's refusal to consider these claims which had been submitted to him on a global basis as he had held that on the material available to him there had been insufficient particulars of the cost of Shimizu's shortcomings or defaults to enable him to reduce the claim to an exact amount.

43. It was common ground between the parties that these three separate claims stand or fall together. It is therefore convenient to deal with them collectively.

44. The thrust of Shimizu's claims was that the disruption which had arisen had occasioned them losses concerning all of the podium and tower block. The claims which were made in respect of this were global claims.

45. The principles governing these claims were those referred to in Crosby. Again as with the rubbish removal claim Shimizu did not provide detailed costing to enable an alternative claim to be maintained in the event that their global claim was not upheld in its entirety.

46. Leonard J had before him affidavits sworn by the instructing solicitors for both parties and it was evident that there was controversy over the extent to which it would have been feasible for the arbitrator to attempt to quantify an award on the basis of the material which had been placed before him.

47. It is perhaps ironical that in some respects the Government's submissions would have been more helpful to the arbitrator than those of Shimizu. Be that as it may the arbitrator did form the view that as he was unable to quantify the claims they should be dismissed.

48. After summarising the submissions made by both counsel Leonard J had this to say on 46 of his judgment.

49. The short answer to this finding is that it fails to take cognisance of the fact that the claims were global claims governed by Crosby principles. It also fails to take into account the agreement concluded between the parties earlier referred to whereby it was agreed that there should be finality of the issues coming within the remit of this interim award.

50. Further it is not realistic to suggest that Shimizu could not have anticipated that their global claim would only be accepted in its entirely up to level 6. That is the first level of the tower. They adopted what might be described as a high risk strategy in not including sufficient particulars in an alternative claim.

51. There is no reason why they should not have to abide the consequences of this.

52. This approach is consistent with the approach we adopt on the rubbish removal claim.

53. For these reasons this part of the appeal must be successful and the judge's order that the issues be remitted must be quashed.

Group 2

Leave to appeal

1. Rubbish removal (2.2)

54. Earlier in this judgment the parameters of this problem were outlined in the context of whether or not this claim should be remitted to the arbitrator.

55. It is now necessary to consider the appeal against Leonard J's decision to decline to grant leave to appeal against the arbitrator's ruling.

56. Quite different considerations arise in this connection.

57. Ground 6 of the Notice of Appeal sets out the formulation of the points of law arising for consideration.

          "Ground 6

58. Leonard J summarised the submissions of counsel. To a large extent on the facts they canvassed much the same ground as I have previously referred to. However understandably the main issue in contention was whether the sort of criteria referred to by Hunter JA in P.T. Dover Chemical Co. v Lee Chang Yung 1990 2 HKLR 257 had been satisfied. These were set out at p.264 of his judgment.

'... there is a strong presumption that they have also accepted him for better or for worse in relation to questions of law. This is not however to say that, even in a one-off case, an arbitrator is to be allowed to cavort about the market carrying a small palm tree and doing what he thinks appropriate by way of settling the dispute. What it does amount to is that the Courts will normally leave him to his own devices and leave the parties to the consequences of their choice. They will only intervene if it can be demonstrated quickly and easily that the arbitrator was plainly wrong.'

At the bottom end of the scale the presumption is weakest where the dispute arises between Hong Kong parties out of a standard form of contract in regular use in Hong Kong; turns upon the construction of that contract in the context of events which are commonplace or likely to recur; and has given rise to a question of law decided by a non-legal arbitrator, e.g. an architect or engineer. This is the classic standard case envisaged by Lord Diplock in The Nema where he said at p. 743 D:

'Rather less strict criteria are in my view appropriate where questions of construction of contracts in standard terms are concerned. That there should be as high a degree of legal certainty as it is practical to obtain as to how such terms apply upon the occurrence of events of a kind that it is not unlikely may reproduce themselves in similar transactions between other parties engaged in the same trade, is a public interest that is recognised by the Act particularly in s. 4. So if the decision of the question of construction in the circumstances of the particular case would add significantly to the clarity and certainty of English commercial law it would be proper to give leave.'

I have cited this passage in full because to my mind it shows the true ambit of the phrase 'clarity and certainty'. It is not being used in the general sense of the resolution of some interesting point of law, or of the filling of some lacuna in the books, for the benefit of the public and lawyers generally. I would be minded to regard it as questionable whether leave should ever be given for that purpose. This phrase and 'public benefit' relate I think to a particular class of the public, to those participating in the particular group or trade that uses the common form of contract in question. In those circumstances both the parties and other participants in that trade may have both a present and a future interest in the true construction and effect of the particular clause. The courts can still on occasion play a useful role in fostering uniformity of approach. But this desirable result can only be achieved widely if arbitrators and parties can openly be informed of their colleague's decisions by the parties consenting to the publication of awards with all necessary safeguard as to identity clause. Arbitration (Amendment) (No. 2) Ordinance 1989 s. 2E. Even in such circumstances as these leave should only be granted if a strong prima facie case of error is made."

59. Leonard J gave his reasons for concluding that leave should not be granted at 11 of his judgment:

"Mr. Goldblatt has repeatedly pointed out that the Award in question is not a final award. As it stands, it is broadly equivalent to a declaration of entitlement, to be followed by an enquiry as to quantum. Section 16 of the Arbitration Ordinance confers upon the Arbitrator power to make interim awards and the 4th Interim Award is expressed to be just that.

I hold that no substantive issue of law arises which would merit the grant of leave to appeal on this ground. The Award is an interim award: it is open to the parties to make representations to the Arbitrator as to how he should proceed to resolve the outstanding issues and if the Respondent desires an oral hearing, it can ask for one. The Arbitrator has not made a direction: he has proposed to make one. He would be wise to consider any application for leave to make further submissions."

60. I am satisfied that the judge was right in reaching the conclusion he did. My reason for coming to this conclusion is that adopting the criteria referred to by Hunter JA it cannot be said that the legal principles which have been identified are such as should be ventilated so as to contribute to the clarity of the law in this area. This was very much a "one-off" situation and there is no reason to suppose that the circumstances which have arisen are likely to be of frequent occurrence. This part of the appeal must be dismissed.

Compound interest (2.3)

61. The subject matter of this part of the appeal was the way in which the arbitrator exercised his discretion in ordering that compound interest rather than simple interest should be payable on moneys which had remained outstanding.

62. The arbitrator dealt with this subject at para. 94 of the 4th interim award:

63. It will be noted that no reasons have been given for this adjudication. It is quite difficult to see how they could have been. It is the Government's contention which was not challenged that they never substantially delayed any payment after the issue of an Architect's certificate. Where there had been delay the item in question had been the subject of a genuine dispute.

64. Normally compound interest is not payable as a matter of law in the absence of agreement between the parties or where there has been some morally reprehensible conduct. Such a situation does not appear to have obtained in the present case.

65. Apparently during the course of the arbitration there was controversy over the question as to whether it was generally the practice in Hong Kong for arbitrators to award compound interest. Evidence was obtained on this subject. The result of this was inconclusive. Some arbitrators make such awards other don't.

66. Mr. Fernyhough referred to the legislation which it is anticipated will be shortly enacted which will specifically empower arbitrators to award compound interest. He argued that this meant that it was all the more important that some guidelines should be laid down as to how this discretion should be exercised.

67. Leonard J dealt with this matter at 12 of his judgment:

"I am not persuaded by Mr. Fernyhough's submission that leave should be granted in order to afford to the Court an opportunity of giving guidance to Arbitrators on the exercise of their discretion. The Respondent has failed to show a strong prima facie case that the Arbitrator acted capriciously or arbitrarily. The Arbitrator heard submissions on the issue and satisfied himself that his approach was not inconsistent with practice and reflected the merits. There is nothing to show that his decision was so unreasonable as to be plainly wrong. The application for leave to appeal on this ground accordingly fails."

68. It will be noted that the judge did not deal with the merits of this matter nor did he weigh or consider the public interest.

69. Adopting the criteria of Hunter JA this issue is clearly one which requires clarification and it is right that leave should be granted for it to be the subject of an appeal. This part of the appeal is successful.

Construction of Clauses 73 and 76 of the contract (2.1)

70. Initially there was an issue as to whether the arbitrator had made the award under 73(1)(b) or 73(1)(c) and (d).

71. From perusing the various awards carefully it is clear that although the arbitrator did not specifically refer to 73(1)(c) and (d) those were the sub clauses he was making a determination on.

72. The issue which had to be determined was the method for ascertaining how the various variations should be valued by the surveyor. This was a substantial issue at the arbitration. Clauses 73 and 76 read as follows:

          "Clause 73

Clause 76

73. Put in very simple terms if the valuation was undertaken pursuant to clause 73(1)(c) and (d) Shimizu would be held to the Bill rates they had included in their tender for the work. These rates were comparatively low. What they were seeking to do was to recover these costs and expenses under clause 76 which in effect would enable them to recover the costs incurred.

74. The arbitrator found for Shimizu without giving any reason for this other than an indication that it would be very hard on the contractor if it was held to the terms of clause 73. No attempt was made to analyse the clauses or to rationalise the decision to allow Shimizu to value variations on a more generous basis.

75. This is a situation which would appear to come within the scope of the considerations which were weighed by Litton VP on 24 of Kwan Lee Construction Co. Ltd. v. Elevator Parts Engineering Co. Ltd. unreported being Civil Appeal 127/1996:

76. Leave to appeal should be granted on this issue.

77. The end result of this appeal is that the Attorney General has to a large extent been successful.

Liu, J.A.:

78. The Hong Kong Government engaged Shimizu Corporation (Shimizu) to carry out extension and improvement works of Queen Mary Hospital. The works were to be executed in phases. Phase 2 of the works comprised a new 11-storey block and a new 23-storey Tower sitting on a 5-storey Podium with a basement plantroom. The parties entered into a standard form construction contract regularly used by the Hong Kong Government. Shimizu took on a number of nominated sub-contractors.

79. There was a 724-day delay in Phase 2 and Phase 3 of the construction works. Extension was granted and Shimizu claimed extra cost and expense. There were then also claims from the nominated sub-contractors involving the Hong Kong Government and Shimizu. The parties went to arbitration. Mr Brian Knight Q. C. was appointed Arbitrator. It was a difficult, hectic and very complex arbitration. Proceedings were protracted. The case of the Hong Kong Government which has been represented by the Attorney General (A.G.) is that a "guillotine" procedure was agreed by all, including the Arbitrator, to finalise, inter alia, the issues in these appeals at a hearing, (the Main Hearing) which was conducted from 10 January to 27 February 1995. Mr Fernyhough, leading counsel for A. G. argued that the Main Hearing should have been one for the final resolution of all the issues in these appeals, both liability and quantum. In his Award made after the conclusion of the Main Hearing, without the parties' consent the Arbitrator reserved some issues for later determination, observing that "although it was intended that this Award should be final and deal with all outstanding matters of liability and quantum, it [had] not been possible to do so." A.G. maintained that the Arbitrator was bound to finally dispose of all the outstanding delay and disruption claims. For the purposes of these appeals, suffice it to identify the following complaints of A.G.:

80. A.G.'s applications to Leonard, J. under the Arbitration Ordinance for remission of matters in I-1.1 and I-1.2 were dismissed. Shimizu's application to Leonard, J. for remission of matters in I-1.3, I-1.4 and I-1.5 were successful. A.G.'s applications for leave to appeal as regards matters in II-2.1 and II-2.2 were denied. Appeal against the Arbitrator's holding that he had jurisdiction to grant compound interest was entertained by consent, and Seagroatt, J upheld the Arbitrator's jurisdiction to award compound interest and from that decision A.G. appealed. That appeal was stood over. As to leave to appeal in II-2.3 against the Arbitrator's exercise of his discretion to grant compound interest, it was refused.

81. Apart from the said pending appeal to this court against the determination of Seagroatt, J. on jurisdiction to award compound interest, we heard submissions on the following eight matters:

I A.G.'s appeal against Leonard, J's refusal of his applications to remit the two following matters:

          (It was agreed on all hands that all three should stand or fall together.)

II A.G.'s appeal against the decisions refusing leave to appeal against the following decisions of the Arbitrator:

82. These appeals largely revolved round the agreed "guillotine" procedure. Before us Shimizu's leading counsel, Mr Goldblatt acknowledged the existence of an "agreed procedure" in the Main Hearing. The Arbitrator expressed this view: "It was intended that this [Fourth Interim] Award should be final and deal with all outstanding matters of liability and quantum." Mr. Fernyhough, leading counsel for A.G. submitted that there was at least a settled intention to abide by what was known as the "guillotine" procedure but that there was in fact a binding agreement to adopt it, as evidenced by or could be gleaned from the following sources:

83. There was clearly a binding agreement for the Arbitrator to (a) complete all the evidence and submissions in 150 hours, with 75 hours allotted to each side and (b) make a final arbitral award on all the issues after the hearing. Decisions on some matters not forming part of these appeals were deferred by consent. If parties have elected to arbitrate or, in the words of Lord Donaldson MR in M.F. King v. Thomas Mckenna and Holbeach (1990) 54 BCR 54 at p. 60 "chosen to adopt an extracurial system", procedures may be agreed. Once they are agreed, the parties to an arbitral hearing must abide by those procedures, "warts and all". Ibid. p. 59, per Lord Donaldson M.R. For the selection of a procedure to be adopted in an arbitration, I would set out the following helpful passages appearing at pp. 280-281 of Law and Practice of Arbitration, Mustill and Boyd, 2nd Edn.:

84. In this case, the parties had clearly agreed to adopt the "guillotine" procedure with the blessing of the Arbitrator; he must comply with it. A contrary intention was sufficiently expressed in the agreed "guillotine" procedure to displace the Arbitrator's deemed power to make any interim award under s. 16 of the Arbitration Ordinance. The Arbitrator had no power to embark upon a different procedure without the parties' consent. See Mustill and Boyd, 2nd edn., p. 291. An unauthorised departure from the agreed "guillotine" procedure would constitute an impeachable "technical misconduct" within the meaning of s. 25(2) of the Arbitration Ordinance. "Misconduct" is not necessarily a pejorative term. See Moran v. Lloydd's [1983] 2 All ER 200 at p. 203 h-j. The court's jurisdiction to remit is unlimited. See King v. Mckenna. supra, p. 59. But the power of remission under s. 24 of our Arbitration Ordinance is discretionary and discretion has to be exercised on established principles. Moran v. Lloyd's, supra p. 204 b/c. In the circumstances, the Arbitrator must observe the "guillotine" procedure and dismiss a claim and decline to make any award if it was unsubstantiated or otherwise successfully challenged as a Global claim. His substantial deviation from the agreed framework for resolving arbitral disputes constituted, in statutory terms, "misconduct".

85. It would not be misconduct calling for remission if an arbitrator merely makes an erroneous finding of fact or of law. Moran v. Lloyd's, supra p. 204 c/d. Misconduct may be described as "such a mishandling of the arbitration as is likely to amount to some substantial miscarriage of justice". Williams v. Wallies and Cox [1914] 2 KB 478 at p. 485. It is always a question of fact and degree. Mabanaft GmbH v. Consentino Shipping Co. SA, The Achiller [1984] 2 LI.L.R. 191. Broadly speaking, there are five categories in which remission may be ordered for misconduct by an arbitrator of himself or the proceedings. See Halsbury Laws of England, Vol. 2, p. 400, para. 692. Mustill and Boyd 2nd Edn. also posits five but different grounds. See p. 551. These lists are by no means exhaustive. As has been seen from Mustill and Boyd p. 281, "failure to comply with the agreement of the parties is misconduct, which may invalidate the award". See also Halsbury's Law of England, Vol. 2, p. 402, para. 694. In this direction, Lord Donaldson M.R. found it "helpful to ask [himself] what in truth the parties accepted when they agreed to arbitrate", but it is not the only nor conclusive test. King v. Mckenna, supra p. 60. It is equally difficult to provide an exhaustive definition of misconduct. Halsbury's Law of England, Vol. 2, p. 402, para. 694. The Master of the Rolls expressed the view that the jurisdiction to remit was "designed to remedy deviation, from the route which the reference should have taken towards its destination (the award)". King v. Mckenna, supra p. 61. For misconduct, this court should focus on all the circumstances including the way in which the agreed "guillotine" procedure came to be adopted, the agreement as to and conduct reflecting what the parties in truth accepted, the course which the arbitration took, the deviation of the Arbitrator, and the likely consequences of substantial miscarriage of justice.

86. As to whether there was a binding agreement for the use of a procedural code before the Arbitrator, I derive considerable assistance from the parties' consensus in and their observance of the "guillotine" procedure, its approval and acceptance by the Arbitrator, the measure taken in the proceedings and the parties' course of conduct including that of the Arbitrator. Clearly, there existed a binding agreement or settled intention for the "guillotine" procedure. Acting as he did, the Arbitrator was in breach of that agreement. Was it misconduct? The issues before this court were all intended to be resolved on the evidence adduced by each party within the time allotted. With the superimposed "guillotine" procedure, finality was doubly assured to this arbitration. In breaching his duty under the "guillotine" procedure, the Arbitrator had also deprived A.G. of an opportunity to address him or address him fully before a decision was taken to disregard the procedural code. The Arbitrator had taken a course not put to the parties. The Arbitrator's deviation from the agreed procedure would in effect impose upon A.G. arbitral proceedings of a different kind. The deferment of any final award for more deliberation on further evidence was to allow introduction of matters which had not been referred to the Arbitrator within the 150 hours under the "guillotine" procedure. The desired effect of the "guillotine" procedure was circumvented and the Global claims were resuscitated after they had failed. All this goes to prejudice to which I shall return.

87. I come then to consider Shimizu's Global claims. The nature of a Global claim and the impact of Crosby Ltd & Portland U.D.C. (1967) 5 BLR 121 are succinctly analysed in Keating on Building Contracts, 6th Edn. at p. 474:

"Composite claims. Contractors often have claims dependent on a number of separate causes each of which has contributed to delay and extra cost. In principle, the loss attributable to each cause should be separately identified and particularised but separation may be difficult. In Crosby Ltd v. Portland U.D.C., Donaldson, J. considered a lump sum award made by an arbitrator for claims arising under various terms of the contract. He said that since the extra cost incurred depended upon an extremely complex interaction between the consequences of various matters, it might well be difficult or even impossible to make an accurate apportionment between the several causes, and that there was no need to make an artificial appointment which had no basis in reality. In such circumstances a single lump sum award was proper provided the arbitrator bad ensured that there was no duplication and that................. However, [Crosby] only establishes that where the full extent of extra costs depends on the consequences of various events, so that it may be difficult to make an accurate apportionment of the total extra costs, it may be proper to make individual financial awards for claims which can conveniently be dealt with in isolation and a supplementary award for the financial consequences of the remainder as a composite whole."

88. Donaldson, J, as he then was, was prepared to accept a lump sum awards as one appropriate for claims legitimately presented as a Global claim, even arising under various terms of the contract. At p. 475, Keating warns the practitioners of "the danger of advancing a composite financial claim [in that] it might fail completely if any significant part of the delay is not established and the court finds no basis for awarding less than the whole."

89. In Hudson's Building and Engineering Contracts, 11th edition p. 1090, para. 8-204, the legal basis for a Global claim "on a total costs basis" is questioned, but it is similarly submitted "that, even if such a claim is allowed to proceed, it should only be on the basis that, on proof of any not merely trivial damage or additional cost being established (or indeed any other cause of the additional cost, such as under-pricing) for which the owner is not contractually responsible, the entire claim will be dismissed." In this case, no point was taken on the propriety in the presentation of the Global claims.

90. This court was called upon to examine the circumstances in which a Global claim could be dismissed, and as to that there seems to be no academic dissent. Since Shimizu was expecting to be wholly successful on the prolongation claims, it did not advance a fall-back claim in terms of alternatives, nor provide the Arbitrator with break-down figures. The Arbitrator was not able to identify or quantify, inter alia, the elements of costs attributable to Shimizu's own defaults. That was the finding the Arbitrator made. The Arbitrator could not strip off these elements of costs or isolate them from Shimizu's Global claims to render them certain. A.G.'s surveyor, Mr Cleary, attempted to evaluate on alternative bases, but his figures were equally unhelpful for identifying any certain Global claim.

91. In reserving matters for future decision, the Arbitrator failed to provide finality to all the issues placed before him as contemplated by the "guillotine" procedure. With hindsight of the Arbitrator's expressed views in the award, Shimizu would enjoy an unfair advantage in its yet another attempt to adduce further evidence and/or advance re-aligned or enlarged arguments which might not have then been conceived but could with reasonable diligence have been put forward within the "guillotine" time frame. A.G. was not sufficiently forewarned or given an opportunity to address the Arbitrator on his power to adopt, on his own, a different procedure. A Global claim is hazardous but, if successful, highly rewarding. The Arbitrator's deferment had the effect of allowing Shimizu to raise a Global claim without its inherent risk. Worse still, the Arbitrator's breach had wholly ignored the "guillotine" procedure which the parties saw fit to superimpose on Shimizu's Global claims. A.G. also lost the finality expected of this procedure. The combined effect of it all was or must have amounted to a substantial miscarriage of justice. There was an agreement as to the procedure to adopt. Neither the Arbitrator nor any of the parties sought a release from the agreed code. The arbitration was concluded in accordance with the guillotine procedure. On any view, the Arbitrator's unauthorised departure from it was a substantial miscarriage of justice.

92. A.G. sought leave to and did make late amendments. Shimizu simply left them in the hands of the Arbitrator by stating: "We trust you to reject it"; "We trust you to do your best". That was certainly not conduct resiling from or recanting the "guillotine" agreement. Shimizu took no positive step to invite the Arbitrator to disallow A.G.'s late amendments which were partly in response to those of Shimizu. No adjournment or extension of the allotted 75 hours was applied for. In fact, no attempt was made to overturn the agreement. Indeed Shimizu did not take any point on A.G.'s late amendments that they constituted a departure from or breach of the agreement. No reservation was at all made. Clearly, neither Shimizu nor the Arbitrator was released from the "guillotine" procedure.

93. There is really no substance in Shimizu's arguments advanced to us that A.G.'s late amendments abrogated or breached the "guillotine" procedure agreement or that the Arbitrator's deemed power to make an interim award under S. 16 of the Arbitration Ordinance had not been effectively removed. It was further pressed upon us for Shimizu that it was unjust to dismiss the Global RRC, well knowing that a substantial sum must be due to Shimizu. It was submitted that Leonard, J would have been wrong to merely give a right but deny a remedy in the quantification of damages. But Shimizu elected to advance Global claims with known hazards. No question of unfairness could possibly arise in such an election. There was no justification for the Judge to make in effect a "declaration of entitlement" and adjourn for quantification. In my view, the Arbitrator misconducted himself in taking an unauthorised departure from the agreed procedural code in the reference as he was evidently wrong in law in not dismissing the Global claims.

94. It was further argued that what Shimizu itself had to be responsible for was over-evaluated, thus bringing down RRC which were in consequence grossly underclaimed in the Global prolongation. This is what was advanced as the "buffer argument". The Arbitrator was unimpressed by the suggested probability of RRC falling below the "buffer" and he was not persuaded that in principle there was room for raising the "buffer argument" in any of the Global claims. He commented: "I have been trying to think whether there was any other area of law in which the buffer approach is adopted." I am in agreement with the Arbitrator. The "buffer argument" does not seem to be meritorious.

95. There is no doubt as to what procedure in truth the parties had accepted and "what the route was, in which the reference should have been taken towards its destination." King v. Mckenna, supra p. 60 & 61. In my view, these contentions of Shimizu cannot be supported.

96. In conclusion, the Arbitrator should have simply dismissed the RRC in I-1.1, and as he was not in a position to quantify loss, the Arbitrator was also correct in declining to make any award in I-1.3, I-1.4 & I-1.5. A.G.'s appeals on I-1.1 remission and the Shimizu's three remissions in I-1.3, I-1.4 & I-1.5 should succeed. I-1.1 should be remitted with the direction that the Arbitrator do reconsider with this court's opinion on the question of law and, in effect, dismiss Shimizu's claims. See S.23(2)(b) Cap. 341. As regards the I-1.3, I-1.4 and I-1.5 remissions ordered in favour of Shimizu on its application, those should be discharged.

97. As to A.G.'s appeal on I-1.2, OTC were not canvassed in the submissions made on Schedule 1A - 9, 1A -10, 1A - 19 and 1B - 1. In stark contrast, it had been specifically raised for Schedule 1A - 16. The Arbitrator was not obliged to consider OTC, "one hour extra over-time disruption costs", when it was not put forward. There was no inconsistency in ignoring the element of OTC for I-1.2. The Arbitrator was unable to recollect his actual process of deliberation. A.G. failed to place claims for OTC before the Arbitrator and cannot now complain.

98. As to leave to appeal for II-2.1, II-2.2 and II-2.3, s. 23(4) of the Arbitration Ordinance Cap. 341 would enable this court to grant leave to appeal if "having regard to all the circumstances, the determination[s] of the question[s] of law concerned could substantially affect the rights of one or more of the parties to the arbitration agreement." However, an appeal may only be brought with the consent of the parties or with the leave of the court. See s. 23(3) Cap. 341.

99. Dealing first with II-2.2, five points of law were raised in the Notice of Appeal, viz. whether the Judge erred in finding no agreed "guillotine" procedure either expressly or by conduct; whether the Judge was wrong in not finally determining all the issues in these appeals, liability and quantum alike, after the January February 1995 Main Hearing; whether the Arbitrator's "Fourth Interim Award" should have finally disposed of the matters which he had dealt with, both as to liability and as to quantum; whether the Judge should have found that the Arbitrator was bound finally to determine RRC under Schedule 1A-20 and Schedule 1A-21 on the material before him and whether the Arbitrator should have dismissed the Global claims when Shimizu had failed to substantiate the alleged amounts in full.

100. If the Arbitrator fell into error, should the Hong Kong Government simply live with it? If not, in what circumstances may the Arbitrator's mistake be corrected and the presumption of finality of his arbitral award rebutted? See Pioneer Shipping v. BTP Tioxide ("The Nema"), [1982] AC 724. At p. 739H, Lord Diplock observed that the courts would lean in favour of finality at least in cases which did not involve exposing arbitrators to a temptation to depart from settled principles of law. The rebuttable presumption of finality must be weighed against all the circumstances, including the risk of exposing Arbitrators to temptation to depart from settled principles of law, the public benefit and perhaps, as in Kwan Lee, even the public's confidence in arbitration generally. See Kwan Lee Construction Co. Ltd v. Elevator Parts Engineering Co. Ltd C.A. 127, the judgments of which were handed down on 14 November 1996. The court must have regard to all these and whatever relevant circumstances. Shimizu's failure to establish all the claimed amounts must necessarily involve the interpretation of the Queen Mary Hospital building contract which was in standard form and regular use in the general construction market. A core issue to all the five points of law was whether or not the Arbitrator's deemed power to make an interim award, in the context of that standard form contract, had been effectively removed. The dispute also turned upon situations likely to recur. The Hong Kong building fraternity has "both a present and a future interest" in having these five points of law decided so that clarity and certainty of our commercial law could be significantly enhanced. A Global claim is a high reward strategy and it has to be strictly established. The five points of law were linked, directly or obliquely, to the proper construction of that common form of contract. This was not a one-off situation. "Less strict criteria" for granting leave should be applied in these circumstances. Only a strong prima facie case that the Arbitrator was wrong in his construction need be shown. See The Nema, supra pp. 743D & F, per Lord Diplock. For what I have said about the Global claims and the "guillotine" procedure, it would seem that a strong prima facie case has been made out that the Arbitrator was in error. See The Nema, supra. 743F, per Lord Diplock; PT Dover Chemical Co. v. Lee Cheng Yang, [1996] 2 HKLR 257 at p. 265D, per Hunter, J. A. In my view, there existed circumstances sufficient even to demonstrate that the Arbitrator's deviation was plainly wrong. See The Nema, supra. P. 742H; Seaworld Ocean Line Co. S.A. v. Catseye Maritime Co. Ltd ("The Kelanija"), [1989] 1 Ll.L.R. 30 at p. 32, per Lord Donaldson and Antaios Compania Naviera S.A. v. Salen Rederierna A.B. ("The Antaios"), [1984] 2 Ll.L.R. 235 at p. 206, per Lord Diplock. Also, there is evidently much to be said for the proposition that since a Global claim should only be made when it is impractical or impossible to separate causes and consequences, the remissions granted in favour of Shimizu were tantamount to invitations to perform virtually impractical or impossible tasks. Taking all into account, there was at least a strong prima facie case of error. Having decided in law favourable to A.G. on RRC in I-1.1, leave to appeal cannot be denied to II-2.2 in the circumstances of this case. Leave to appeal should be granted for the delay and disruption costs claims for RRC in II-2.2.

101. As to delay and disruption costs claims for variations in II-2.1, it is clear that the 2nd Interim Award dealt with valuation of variations to be assessed by Mr Plumley under Clause 73(1)(b) and the 4th Interim Award was to deal with, in contra-distinction, delay and disruption costs as a whole under Clause 73(1)(c) and (d). There is nothing in Shimizu's argument that leave to appeal was sought with respect to irrelevant provisions in Clause 73(1)(c) and (d). Moreover, Clause 76 specifically referred to "direct loss and or expense" suffered by Shimizu whilst Clause 73 contained no such reference. The Arbitrator had evidently paid no or insufficient regard to the absence of references to "Costs" or "loss and or expense" in Clause 73. That was material. The attempted construction would seem to be plainly erroneous. Again, at least a strong prima facie case of error has been shown. In my view, leave to appeal should also be granted on the principles I have set out above.

102. As for leave to appeal against the Arbitrator's exercise of his discretion in granting compound interest in II-2.3, in the 4th Interim Report (G p. 241, para. 99) he said this: "I have had regard to the time when claims were submitted in reasonable detail, and allowed for them to be evaluated and determined, at least in principle. I also consider that a more prompt and receptive consideration of claims would have resulted in earlier and more realistic evaluation of claims." The belated evaluation and or submission of claimed expenses the Arbitrator prayed in aid was clearly insupportable as a given reason because the parties had virtually agreed not to take any point on delay in presenting or processing claims. See Day 17 page 112 of the transcript. The Arbitrator did not proceed to adopt an approach similar to the process of reasoning engaged by Seagroatt, J. for the Arbitrator's jurisdiction to grant compound interest. The judgment of Seagroatt, J. did not deal with the exercise of discretion and is itself under appeal. Assuming that the Arbitrator had jurisdiction, in effect the Arbitrator did not state precisely upon what grounds considerations his discretion was exercised. We know not why the Arbitrator preferred compound interest to simple interest. The Arbitrator's omission or failure to give any or any good reasons would lead this court, in the circumstances known to us, to draw "the inference that he has had no rational reasons for his decision" See R. v. Trade and Industry Secretary, ex parte Lonrho Plc. [1989] IWLR 525 at p. 546A, per Lord Keith. S. 22A of the Arbitration Ordinance enables an arbitrator to award interest (not, be it noted, compound interest) at such rate as he thinks fit. The same word "interest" is used in S. 22 under which an award would prima facie carry simple interest as in the case of an unpaid judgment debt. The question of jurisdiction for awarding compound interest would seem to have been accepted as being strongly arguable, otherwise that question would not have been taken to Seagroatt, J. by consent. An exercise of discretion should not be lightly disturbed. For leave to appeal, this court should take into consideration all the circumstances I have examined earlier, including the inclusion of S. 22A in the contract before us, which was said to be in standard form and general use. This, we were told, was expected to be a recurrent problem. Absence of given reasons for awarding compounding interest aside, an award of compound interest, in the Arbitrator's discretion, would appear to be punitive. In any case it was an unusual one, and there existed no additional features for awarding punitive compound interest or making an unusual award. None was identified. It would be clearly desirable for a decision-maker to give reasons for an unusual order. See Eagil Trust Co Ltd. V. Pigott-Brown and another, [1985] 3 ALL ER 119 at p. 122a/b. There was also no authoritative guidance as to how such a discretion ought to be exercised. Local arbitrators or umpires followed no set practice. Seagroatt, J's judgment on jurisdiction was being sought to be tested by A.G., and it would be for the public benefit to include an integral aspect, "discretion", for consideration at the same time so as to bring, once and for all, clarity and certainty to our commercial law, particularly when there has been no authoritative guidance on the proper exercise of such a discretion and when there is no settled practice amongst our arbitrators or umpires. The law is expected to change early next year to offer a choice between awarding simple or compound interest, but there would still be a great many cases caught by the existing legislation. Leave to appeal would be granted only if it is clear that the Arbitrator had misdirected himself on principle. See p. 394 of Mustill and Boyd and Cargill Inc v. Marpro Ltd., [1983] 2 LI.L.R 570 referred to in footnote 3. In my view, this is such a case. Moreover, in a matter devoid of established principles, seeking guidance from the Court of Appeal should be encouraged. See Eagil Trust, supra at p. 121 h, per Griffiths L.J. as he then was.

103. In conclusion, leave to appeal should also be granted in respect to II-2.3.

104. I would accept counsel's invitation to address us on the proper orders to be made.

Nazareth V-P:

105. Subject to what follows, I agree with the conclusions of Liu and Mayo JJA and their reasons. Because they do not agree as to one minor matter, and also because we disagree with the judge below upon a number of important matters, I add the following, stated shortly because it reiterates what they have said.

106. I gratefully adopt the outline of facts and issues given by my Lords. I am able thus to turn directly to the three groups of issues helpfully suggested by counsel on both sides, Mr Fernyhough QC who with Miss Teresa Cheng appeared for the Attorney General, the appellant, and Mr Simon Goldblatt QC who, with Mr Peter Clayton, appeared for the respondent (Shimizu).

The global claims

Rubbish removal claim 1.1

107. The first of the four global claims (the approach to which also disposes of the other three global claims, i.e. 1.3, Phase 2 Formwork Claim; 1.4 Tower Disruption Claim; and 1.5 Additional Reinforcement Claim) is the Rubbish Removal Claim.

108. The arbitrator accepted Shimizu's entitlement to reimbursement for this claim in principle but he held he could not make an award in the absence of further evidence, investigation and analysis. He accordingly directed Shimizu to review the costs and identify as thoroughly as possible, the sums to be excluded. For the appellant, Mr Fernyhough, submitted that in doing so the arbitrator misconducted the reference, made procedural errors and adopted a course not agreed to by the parties.

109. It is clear that the parties had agreed that the arbitrator would finally adjudicate upon the claims advanced by Shimizu in particular in conjunction with the guillotine procedure they adopted. In the absence of a further agreement by them modifying their earlier agreement for a final adjudication upon those claims, it was wrong of the arbitrator not to proceed to a final adjudication and instead to direct Shimizu to review the costs and identify sums to be excluded.

110. It seems to me also that from the nature of a global claim as expounded by Donaldson J (as he then was) in Crosby v Portland Urban District Council 5 BL 121 at 135, individual items of the global claim cannot be selected for acceptance or rejection. The whole claim must succeed or fail in its entirety.

111. Leonard J refused an order for remission upon the following three grounds:

112. The short answer to these matters is-

113. The failure of the arbitrator to comply with the agreement of the parties is "misconduct" which invalidates the award and entitles a court reviewing the matter to remit it to the arbitrator (see Mustill and Boyd, 2nd edn, p. 281; Halsbury's Laws of England, 4th edn, Vol. 2, p. 402, para. 694).

114. I agree, therefore, that the rubbish removal claim should be remitted to the arbitrator to reconsider upon the foregoing views of the law pertaining to global claims.

The formwork, tower disruption and additional reinforcement claims, 1.3, 1.4 and 1.5

115. Turning to the remaining three global claims, i.e., 1.3, 1.4 and 1.5, they must fail upon the foregoing matters of finality and the legal aspects of global claims. Accordingly, I, also, would quash the orders remitting the three claims to the arbitrator.

Omitted overtime deduction, 1.2

116. When dealing with claim 1A-16, the arbitrator deducted 1 hour's overtime from the labour rate. However, he did not do so with respect to items 1A-9, 1A-10, 1A-19 and 1B-1 which clearly should similarly have been done. However, he did not do so because the Attorney General failed to seek the deduction. For the reasons given by Liu and Mayo JJA, I would also dismiss the appeal against the refusal of Leonard J to remit the matter.

Leave to appeal, 2.1, 2.2 and 2.3

117. There was no dispute as to the criteria applicable to the granting of leave. I agree for the reasons given by my Lords that leave should be granted in respect of 2.1 (clauses 73 and 76 - prolongation costs valuation and 2.3, discretion to award compound interest).

118. As to 2.2 (rubbish removal) upon which my Lords disagree, I am not persuaded that this issue involves legal principles that should be ventilated so as to contribute to the clarity of the relevant law. Nor am I persuaded that this is not a "one-off" situation. I would therefore not grant leave.

119. In all the circumstances it is clearly prudent that we should afford counsel the opportunity to make submissions, as they have suggested, before the orders to be made are settled.